Citigroup misrepresented its financial condition and failed
to disclose material information, leading the Norway bank to buy
the New York-based bank’s stock and bonds at inflated prices
during the period between January 2007 and January 2009, Norges
Bank said in the Sept. 17 lawsuit filed in U.S. District Court
in Manhattan.

“Citi’s near-demise had its genesis in the company’s
increasing willingness to take on risk for the sake of profit,
without regard for -- and without disclosing -- the magnitude of
the downside exposure it faced if those risks materialized,”
the bank said in the complaint.

The lawsuit names 20 current and former directors and
executives including former CEO Charles “Chuck” Prince.

Norges Bank, through its investment arm, is responsible for
investing the assets of the Norwegian Government Pension Fund
Global, the world’s second-biggest sovereign wealth fund. The
fund invests outside Norway to avoid stoking domestic inflation.

“We believe the suit has no merit and will defend
ourselves vigorously,” Citigroup spokeswoman Danielle Romero-
Apsilos said in a statement.

“Norges Bank’s complaint tracks, in large part, the
complaint filed in the securities class action lawsuit currently
pending against Citigroup, but Norges Bank believes it will be
better served by pursuing its own direct action,” Bunny
Nooryani, a spokeswoman for the central bank in Oslo, said in a
telephone interview. The central bank is also a plaintiff in the
class-action lawsuit, she said.

The case is Norges Bank v. Citigroup, 10-cv-07202, U.S.
District Court, Southern District of New York (Manhattan).

For more, click here.

Litwin Foundation Sues SEC for ‘Negligence’ Over Madoff Losses

The Litwin Foundation, a victim of convicted con man
Bernard Madoff, sued the U.S. Securities Exchange Commission for
“negligence” in failing to uncover the $65 billion Ponzi
scheme.

The New Hyde Park, New York-based foundation seeks to
recover at least $19 million and other unspecified damages
against the agency for failing to prevent losses at Madoff’s
investment firm.

The government’s “sovereign immunity” from lawsuits
should be waived under a law that allows cases to be brought
against the U.S. if its workers were negligent, the foundation
said in the complaint. The organization was established in 1989
and contributes to nonprofits that include Lincoln Center for
the Performing Arts and the Brooklyn Botanical Garden.

The SEC “had countless opportunities to stop the Ponzi
scheme Madoff operated over 16 years and botched all of them,”
the foundation said in the complaint.

John Heine, a spokesman for the SEC, declined comment on
the lawsuit.

Last year a related lawsuit was filed by Phyllis
Molchatsky, a disabled retiree and single mother who lost $1.7
million, and Steven Schneider, a doctor who lost almost
$753,000.

Madoff, 72, is serving a 150-year sentence for running the
fraud. His family members and his biggest investors have been
sued for as much as $15 billion by the bankruptcy liquidator.

The case is The Litwin Foundation v. United States of
America, 10-CV-7367, U.S. District Court, Southern District of
New York (Manhattan).

For the latest new suits news, click here. For copies of recent
civil complaints, click here.

Lawsuits/Pretrial

Chiesi Granted Hearing on FBI Statement Suppression

Danielle Chiesi, accused with Raj Rajaratnam in the largest
insider-trading case against a hedge fund, will get a hearing on
whether statements she allegedly made to investigators can be
used as evidence against her.

U.S. District Judge Richard Holwell in New York set an Oct.
28 hearing for the New Castle Funds LLC consultant indicted with
Rajaratnam, Galleon Group LLC’s co-founder. Chiesi’s lawyers are
trying to bar statements she made to Federal Bureau of
Investigation agents on Oct. 16, 2009, when she was arrested.

Agents knocked on her apartment door about 6 a.m., Chiesi’s
attorneys said in court papers. They questioned her for about 90
minutes without advising her of her right to remain silent and
speak to a lawyer, creating legal ground for suppressing what
she said, according to the defense attorneys.

“The statements elicited from Danielle Chiesi by the
agents must be suppressed because they were made in a custodial
setting without having been preceded by the advice of rights,”
her lawyers Alan R. Kaufman and James M. Keneally, both of the
law firm Kelley Drye & Warren LLP, said in court papers.

“They informed the defendant that Raj Rajaratnam was
already in custody, that she had the opportunity to help herself
by cooperating, but either way she was going to be arrested then
and there or later in the day if she agreed to cooperate,” the
defense lawyers said.

Prosecutors said the statements shouldn’t be suppressed.

“The government is prepared to call agents who will
testify that Chiesi was read her Miranda rights and agreed to
speak with the agents before she made those statements in her
apartment,” Assistant U.S. Attorneys Jonathan Streeter and Reed
Brodsky said in court papers.

Rajaratnam and Chiesi are charged with illegally using tips
from company executives, hedge fund officials and other insiders
to earn millions of dollars. Both deny wrongdoing.

The case is U.S. v. Rajaratnam, 1:09-cr-1184, U.S. District
Court, Southern District of New York (Manhattan).

Sallie Mae Suit to Proceed on Some Claims, Judge Says

A lawsuit alleging student-loan maker SLM Corp. hid its
lack of reserves and made misleading statements about earnings
may proceed, a judge ruled.

U.S. District Judge William Pauley in Manhattan said the
investor plaintiffs presented enough evidence to continue their
case against Reston, Virginia-based SLM, known as Sallie Mae,
and its executives. The 2008 suit claims the lender was
misleading about its underwriting guidelines, loan forbearance,
and financial performance in a bid to inflate its stock price.

The lead plaintiff is SLM Venture, a joint venture
established by families to invest in Sallie Mae stock. The suit
seeks class-action status for investors who relied on statements
made by the company from January through November 2007 to buy
common stock. Sallie Mae dropped 57 percent during the period,
according to data compiled by Bloomberg.

Pauley dismissed a related suit brought by plaintiffs who
sought to represent participants in SLM’s employee savings and
retirement plans, which invested in SLM stock. The plaintiffs,
Jitandra Patel and Alex Cordero, claimed SLM breached its
fiduciary duty by masking the “precariousness” of its loan
portfolio and hid losses from investors.

“Patel and Cordero have neither participated in nor been
beneficiaries of the retirement plan,” Pauley said.

He also dismissed related claims filed against the
company’s former president and chief executive officer, C.E.
Andrews, saying the plaintiff “failed to adequately allege
motive and opportunity.”

Edward Ciolko, a lawyer who represents Cordero and Patel,
and Jamie Kohen, a lawyer for SLM, didn’t return voice-mail
messages left at their offices after business hours.

The cases are In re SLM Securities Corporation Securities
Litigation, 08-CV-1029, U.S. District Court, Southern District
of New York (Manhattan).

Massey Managers Ask Judge to Block Subpoenas Probing Blast

Lawyers for six Massey Energy Co. managers asked a West
Virginia judge to quash subpoenas from the state’s mine safety
director requiring them to answer questions about the April
explosion that killed 29 people.

The state agency is being used by the federal Mine Safety
and Health Administration to force these managers to testify in
an abuse of process, the lawyers said in a Sept. 21 filing in
state court in West Virginia. The state can compel testimony
while the federal agency can’t under limits imposed by Congress,
the lawyers said.

The April 5 explosion at Massey’s Performance Coal
operation in Montcoal, West Virginia, the worst U.S. mine
disaster in 40 years, set off federal and state investigations
into its cause. The West Virginia agency this month issued the
subpoenas, including one to Elizabeth Chamberlin, Massey’s vice
president of safety and health, after the federal probe stalled,
the managers’ lawyers said.

“In August 2010, MSHA grew restless with the pace and
consistency of appearances by witnesses it invited for voluntary
interviews,” they said in the filing. As a result the federal
agency “importuned” the state “to issue subpoenas compelling
the attendance and testimony of those persons.”

The federal mine safety agency has made “inflammatory
public statements” about Massey’s Performance Coal operation
“from the outset of its investigation,” implying that the
accident occurred because of safety violations, the lawyers
said. “MSHA has a substantial and immediate interest in making
such allegations in order to deflect its own potential
responsibility for the tragedy.”

The West Virginia Office of Miners’ Health, Safety and
Training “is not commenting at this time on the status of any
subpoenas issued pursuant to the official investigation into the
Upper Big Branch Mine or on any ongoing litigation,” Leslie
Fitzwater, spokeswoman for the agency, said in an e-mail.

Amy Louviere, at MSHA, said, “We don’t comment on ongoing
cases. This is a West Virginia matter. We aren’t even a party to
this matter.”

The case is In the Matter of Administrative Subpoenas
issued by the West Virginia Office of Miners’ Health, Safety &
Training, 10-P-22-H, Circuit Court, Raleigh County, West
Virginia.

David Jones Ex-CEO Denies Sexual Harassment Charges

David Jones Ltd.’s former Chief Executive Officer Mark
McInnes denied that he sexually harassed publicist Kristy
Fraser-Kirk and said he tried to kiss her at a party after she
made comments of a sexual nature.

McInnes and the company filed their statements of defense
Sept. 24 in Sydney Federal Court in response to allegations of
sexual harassment from Fraser-Kirk, who is seeking A$37 million
($35 million) in punitive damages.

Fraser-Kirk, 27, sued last month claiming McInnes, 45, made
unwelcome sexual advances at two company functions, including
putting his hand under her clothing and trying to kiss her.
McInnes also repeatedly invited Fraser-Kirk to Bondi, where he
owns an apartment, with the implication that it would be for
sexual intercourse, Fraser-Kirk said in her complaint.

Fraser-Kirk “made comments of a sexual nature” at a June
7 function, according to court papers filed on McInnes’s behalf,
“in response to which he attempted to kiss her.”

David Jones also denied any wrongdoing in its statement of
defense. After the first function on May 23, Fraser-Kirk told
her supervisors “in a lighthearted and jovial tone and without
complaining” that McInnes had asked her out for a drink, the
company said. She didn’t complain until June 9, it added.

McInnes said he invited Fraser-Kirk for a drink to North
Bondi Italian, a restaurant in the beach-front suburb, and
denied there was any implication of sexual intercourse.

Anthony McClellan, a spokesman for Fraser-Kirk, said she
wouldn’t comment on the defense documents filed Sept. 24.

McInnes resigned in June, following Fraser-Kirk’s
complaints.

The case is between Kristy Anne Fraser-Kirk and David Jones
Ltd. 964-2010. Federal Court of Australia (Sydney).

Wal-Mart, the world’s largest retailer, last month asked
the high court to block female employees from suing on behalf of
as many as 1.5 million women. The case would be the largest
gender-bias suit against a private employer in U.S. history.

Should the court agree to hear the case, it would likely
become the most significant business dispute before the
justices. Robin Conrad, who heads the U.S. Chamber of Commerce’s
litigation arm, this week called the dispute the “800-pound
gorilla” of the court’s 2010-11 docket. The court is likely to
say later this year whether it will hear arguments.

The companies, which also include Microsoft Corp. and
General Electric Co., argued that judicial approval of a class
action puts enormous pressure on defendants to settle, even if
the claim is frivolous.

“Because the specter of potentially enormous class-wide
liability compels defendants to settle even meritless claims,
class certification decisions are often tantamount to a decision
on the merits,” 18 of the companies argued. Intel filed a
separate brief, making similar arguments.

Wal-Mart is accused in the 2001 suit of paying women less
than men for the same jobs and giving female workers fewer
promotions. In April, a federal appeals court ruled 6-5 that the
case could proceed as a class action on behalf of women who
worked at Wal-Mart since 2001.

Wal-Mart contends the claims of workers around the country
are too diverse to proceed as a single case under the rules that
govern federal lawsuits.

Brad Seligman, an attorney for the workers, said last month
that “only the size of the case is unusual, and that is a
product of Wal-Mart’s size and the breadth of the discrimination
we documented.”

U.S. Supreme Court Justice Antonin Scalia temporarily
blocked a court order that would force the nation’s tobacco
companies to spend more than $270 million on a Louisiana smoking
cessation program.

Scalia issued a stay Sept. 24 of a Louisiana state court
judgment while the Supreme Court decides whether to hear an
appeal from companies including Altria Group Inc.’s Philip
Morris USA and Reynolds American Inc.’s R.J. Reynolds. It
extends a Sept. 14 stay that was also issued by Scalia.

The cigarette makers contend that the Louisiana courts
improperly let the case go forward as a class action on behalf
of all Louisiana smokers who want to participate in a cessation
or medical monitoring program.

A 2004 jury verdict in the case was the first to require
cigarette makers to pay to help smokers quit. The original
award, $591 million, was reduced on appeal.

The judgment halted by the Supreme Court requires the
companies to pay $242 million, plus $29 million in interest. The
Louisiana Supreme Court refused to stay the award on Sept. 10.

Citigroup Inc.’s $75 million settlement with U.S.
Securities and Exchange Commission won approval from a federal
judge, resolving claims the bank failed to disclose $40 billion
in subprime-related holdings.

U.S. District Judge Ellen Huvelle in Washington had said
last month she was dissatisfied with the proposal and would hold
off approving it until she had more information. Both the bank
and the SEC filed additional papers with the court urging
acceptance of the accord.

Huvelle said at a hearing Sept. 24 that she would sign the
settlement after the parties agreed to further mandatory
disclosure to ensure future oversight. Attorneys are required to
submit the new language within two weeks for her signature.

The company made misstatements on earnings calls and in
financial filings about assets tied to subprime loans as the
housing crisis unfolded in 2007, the SEC said in its July 29
complaint. Some disclosures omitted more than $40 billion in
investments, regulators said.

The penalty “takes into account the seriousness of the
misconduct,” the SEC wrote in a Sept. 8 filing. “It is
sufficiently substantial to send a clear message that misleading
statements by a corporation on issues of importance to investors
cannot go unaddressed.”

Responding to Huvelle’s request, the SEC identified
Citigroup officials -- including former Chief Executive Officer
Charles O. “Chuck” Prince and former Chairman Robert Rubin --
who were aware that losses were mounting in October 2007 on the
highest-rated segments of mortgage-based assets, which the
agency claims hadn’t been fully disclosed. The SEC didn’t accuse
those officials of wrongdoing.

The fact that so many executives were aware of the
disclosure and valuation process and “nonetheless did not note
the central issue identified by the commission in its complaint,
only underscores the weakness of any possible case against
additional parties,” Citigroup wrote in a Sept. 13 filing.

Citigroup was under “no obligation to say anything about
its ‘subprime exposure’” in the second and third quarters of
2007, the bank wrote. It voluntarily decided shareholders would
benefit from “a more concrete understanding” and made some
statements, it said.

The case is Securities and Exchange Commission v. Citigroup
Inc., 10-cv-01277, U.S. District Court, District of Columbia
(Washington).

For more, click here.

Hacker Gets 10 Years for $1.4 Million Internet Theft

Edwin Pena, a convicted computer hacker, was sentenced to
10 years in prison for stealing Internet telephone service
valued at $1.4 million and reselling it to unwitting companies
such as IDT Corp.

Pena, 27, was sentenced Sept. 24 in federal court in
Newark, New Jersey, where he pleaded guilty in February 2009,
almost three years after fleeing the U.S. while on bail. The
Miami resident went to his native Venezuela and Colombia before
living in Mexico, where a girlfriend turned him in to
authorities.

U.S. District Judge Susan Wigenton imposed nearly the
maximum term under advisory guidelines, rejecting a request for
leniency from Pena and his lawyer. While committing the first
fraud of its type in the U.S., Pena bought a new house and
luxury cars and gambled in Atlantic City and Las Vegas,
prosecutors said.

“I would like to apologize to the people of the United
States, to my family, and especially to my daughter,” Pena said
Sept. 24. “I know I’m a changed person now. I’ve grown up. I
know I’ll be good from now on.”

The judge rejected those arguments, saying, “I don’t find
he has any credibility when he says he’s a changed person.”

The case is U.S. v. Pena, 09-cr-103, U.S. District Court,
District of New Jersey (Newark).

For more, click here.

For the latest verdict and settlement news, click here.

Court News

Kagan Presence to Be Felt by Her Absence in First Court Term

Elena Kagan may make her mark in her first U.S. Supreme
Court term less by her presence than by her absence, Bloomberg
News’ Greg Stohr reports.

Kagan has disqualified herself in 20 of the 38 cases on the
court’s calendar because she took part in the litigation as U.S.
solicitor general. The 20 include some top business cases: a
fight over sanctions on employers for hiring illegal aliens, a
clash between manufacturers and discount stores over the
multibillion-dollar “gray market” in imports and disputes over
consumer suits against automakers and drug companies.

In each case, Kagan’s absence creates the prospect of an
evenly divided court, an outcome that would leave the lower
court ruling intact without setting a nationwide precedent,
Bloomberg Businessweek reports in its Sept. 27 issue. The term
starts Oct. 4.

“It’s potentially a big deal” in those cases, said Roy
Englert, a Washington appellate lawyer who will argue in the
import case on behalf of Costco Wholesale Corp., the largest
U.S. warehouse club. “You could have a 4-4 affirmance that will
be satisfying to no one.”

Kagan’s recusals will be important for consumer advocates
because her predecessor, retired Justice John Paul Stevens,
tended to welcome those types of claims, rejecting arguments
that they were preempted by federal law.

“The plaintiff’s tort bar must be entering the term with
some trepidation,” Maureen Mahoney, a Washington appellate
lawyer who represents Mazda, said at a briefing this week
sponsored by the Chamber of Commerce. “They’ve really lost
their champion.”

For more, click here.

On the Docket

Enron’s Skilling Gets Nov. 1 Hearing on Retrial Bid

Former Enron Corp. Chief Executive Officer Jeffrey
Skilling’s bid for a new trial is scheduled for a Nov. 1 hearing
before a federal appeals court in Houston, his lawyer said.

In June, the U.S. Supreme Court questioned whether Skilling
was properly convicted on 19 counts for leading a conspiracy
that caused the collapse of the world’s largest energy trader.
The high court ordered a review of his case by the U.S. Court of
Appeals in New Orleans.

The New Orleans court agreed to hear oral arguments on
Skilling’s request at a session in Houston, Daniel Petrocelli,
his lead attorney, said Sept. 23.

“We are very pleased to have an opportunity to argue
Jeff’s case and hopeful that his long nightmare is coming to an
end,” Petrocelli said in a telephone interview.

All of Skilling’s verdicts were tainted by an invalid legal
theory and should be retried without prosecutors’ reliance on
so-called honest services theft, Petrocelli said in court
papers. Prosecutors are urging the appeals court to reject
Skilling’s request for a new trial and uphold his convictions.
In court filings they insist jurors at Skilling’s 2006 trial
didn’t rely on the invalid theory in finding Skilling and
Enron’s Chairman Kenneth Lay guilty. Lay’s verdicts were erased
because he died before he had the chance to appeal. Laura
Sweeney, a Justice Department spokeswoman, declined to comment
Sept. 23.

Skilling, 56, is serving a 24-year sentence in federal
prison in Englewood, Colorado. He was denied bail while his case
is under review.

More than 5,000 jobs and $1 billion in employee retirement
funds were wiped out when Enron collapsed into bankruptcy in
December 2001, after revelations of widespread accounting fraud.
Investors sued to recover more than $60 billion in market
losses. The case is U.S. v. Skilling, 06-20885, U.S. Court of
Appeals for the Fifth Circuit (New Orleans).

Court Filings

Goldman Suit Alleging Gender Discrimination Most Popular

A lawsuit against Goldman Sachs Group Inc. brought by three
former female employees who claim they faced discrimination in
pay and fewer opportunities for promotion than men at the firm,
was the most-read litigation docket on the Bloomberg Law system
last week.

“The violations of its female employees’ rights are
systemic, are based upon companywide policies and practices, and
are the result of unchecked gender bias that pervades Goldman
Sachs’s corporate culture,” the women said Sept. 15 in a
complaint in federal court in Manhattan.

The plaintiffs, H. Cristina Chen-Oster, 39, a former vice
president; Lisa Parisi, 48, a former managing director; and
Shanna Orlich, 30, a former associate, seek class-action status
to represent all female Goldman Sachs employees with those job
titles.

“We believe this suit is without merit,” said Lucas van
Praag, a Goldman spokesman. “People are critical to our
business, and we make extraordinary efforts to recruit, develop
and retain outstanding women professionals.”

The case is Chen-Oster v. Goldman, Sachs & Co., 10-cv-6950,
U.S. District Court, Southern District of New York (Manhattan).